One-glance verdict
Undervalued
$85.44 our estimate vs market $44.28
Wall Street consensus: $49.89 (-41.6% lower than our fair-value estimate)
48% below our estimate, below the bear case
Fundamentals snapshot
Southwest Airlines Co.
LUV · NYQ · Industrials · Airlines
Current price
$44.28
52-week range
$29.26 - $55.11
Market cap
$21.68B
Balance sheet
Stretched
3.79x Stretched
Net debt $3.25B. Interest coverage shows how many times profit covers the interest bill.
What stands out
3 Rewards
1 Risk
3 rewards · 1 risks
- Reward Revenue grew 12.4% last year.
- Reward Returns 13.9% on equity, ahead of 40% of its peers.
- Reward Free cash flow was positive in 5/10 years.
- Risk Insider ownership is only 1.0% (peer median: 1.5%).
What this company does
Southwest Airlines Co.
Southwest Airlines provides plane rides to people traveling in the United States and some other countries, making most of its money from ticket sales. They also earn extra cash from things like charging for baggage or allowing passengers to board earlier. This matters because it shows how they make money beyond just flying people from place to place, helping them cover their costs and hopefully make a profit.
How the company got here
Southwest Airlines was founded in 1967 by Herbert Kelleher and Rollin King, initially as an intrastate airline within Texas. It began flying in 1971 with a simple model: low fares and friendly service, focusing on short to medium-haul routes. This approach, combined with operational efficiencies like using only one type of aircraft (the Boeing 737), helped it grow into one of the largest domestic airlines in the United States. Despite facing challenges, including a period where profits were impacted by the pandemic, Southwest has a long history of profitability, with a streak of 47 consecutive profitable years prior to that.
Passenger
This is the core of Southwest's business, where the vast majority of its revenue comes from selling tickets for air travel. Customers pay for one-way or round-trip flights, often choosing Southwest for its competitive fares and customer-friendly policies. This segment also includes revenue from ancillary services, which are extra offerings that customers can purchase, such as early check-in or upgraded seating, adding to the overall ticket price.
Ancillary Services and Loyalty Programs
Beyond just the flight ticket, Southwest generates additional revenue through various ancillary services. These include things like fees for checking bags (though Southwest famously offers two free checked bags), in-flight purchases of snacks and beverages, and services like 'EarlyBird Check-In' which allows passengers to board earlier. The Rapid Rewards loyalty program is also a significant revenue driver, encouraging repeat business through points and rewards, and often includes partnerships with credit card companies.
Cargo and Freight
While primarily known for carrying passengers, Southwest also offers cargo transportation services. This means they use space on their flights to transport goods and packages for businesses. This segment provides an additional revenue stream for the airline, diversifying its income beyond just passenger ticket sales and related services.
What management is betting on now
Southwest's current strategy focuses on modernizing its fleet with newer Boeing 737 aircraft to improve efficiency and reduce costs. They are also expanding their flight offerings, including more 'redeye' (overnight) flights and longer-haul routes, to better utilize their aircraft and cater to more travel needs. Additionally, management is investing in digital tools, enhancing their loyalty program, and exploring new seating options to improve the customer experience and revenue generation, all while maintaining their core low-cost structure.
Price history
How the share price has moved
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Earnings history
Last 8 quarters — what happened
Click any quarter to read the call summary and what the numbers say.
FY2024 Q4
$16.00M
FY2025 Q1
$359.00M
FY2025 Q2
$-234.00M
FY2025 Q3
$-391.00M
FY2025 Q4
$-565.00M
FY2026 Q1
$788.00M
FY2026 Q2
$-288.00M
FY2026 Q3
$-493.00M
Revenue
$8.42B
Net income
$270.00M
Diluted EPS
0.55
Operating cash flow
$513.00M
Free cash flow
$-493.00M
Fetching…
Sources
Revenue
$8.43B
Net income
$233.00M
Diluted EPS
0.47
Operating cash flow
$530.00M
Free cash flow
$-288.00M
Fetching…
Sources
Revenue
$7.25B
Net income
$227.00M
Diluted EPS
0.45
Operating cash flow
$1.42B
Free cash flow
$788.00M
Fetching…
Sources
Revenue
$7.44B
Net income
$323.00M
Diluted EPS
0.56
Operating cash flow
$294.00M
Free cash flow
$-565.00M
Fetching…
Sources
Revenue
$6.95B
Net income
$54.00M
Diluted EPS
0.10
Operating cash flow
$287.00M
Free cash flow
$-391.00M
Fetching…
Sources
Revenue
$7.24B
Net income
$213.00M
Diluted EPS
0.39
Operating cash flow
$401.00M
Free cash flow
$-234.00M
Fetching…
Sources
Revenue
$6.43B
Net income
$-149.00M
Diluted EPS
-0.26
Operating cash flow
$860.00M
Free cash flow
$359.00M
Fetching…
Sources
Revenue
$6.93B
Net income
$262.00M
Diluted EPS
0.46
Operating cash flow
$476.00M
Free cash flow
$16.00M
Fetching…
Sources
Is it cheap or expensive?
Fair value $85.44 vs current price $44.28
Wall Street consensus is the average analyst price target: $49.89 (-41.6% lower than our fair-value estimate).
Our most-likely fair value is $85.44 a share — about 92.9% above today's price of $44.28, so the stock currently looks cheap (undervalued).
Is it drowning in debt?
Stretched
Net debt $3.2B. Interest coverage 3.8x.
Net debt
$3.25B
Interest coverage
3.79x
Southwest Airlines Co.'s profit covers its interest bill about 3.8 times over. which is stronger than most peers shown here and 2 peers sit below 1x, which is the danger zone where profit does not fully cover the interest bill.
Stretched
Worse cushion
Baseline
Better cushion
LUV
BASELINE
Southwest Airlines Co.
Total debt $6.87B Interest coverage 3.79x This is the baseline the peer rows are being compared against.
Total debt $37.21B Interest coverage 0.95x -75% vs LUV Carries about 4.0x less debt cushion than LUV.
Total debt $34.29B Interest coverage 4.26x +12% vs LUV Has roughly the same debt cushion as LUV.
Total debt $19.94B Interest coverage 8.57x +126% vs LUV Carries about 2.3x more debt cushion than LUV.
Total debt $7.52B Interest coverage 2.35x -38% vs LUV Carries about 1.6x less debt cushion than LUV.
Total debt $9.35B Interest coverage -0.58x -100% vs LUV This peer has almost no interest-payment cushion compared with LUV.
What you should know
The case for and against LUV
3 Rewards
1 Risk
Rewards
-
Revenue grew 12.4% last year.
-
Returns 13.9% on equity, ahead of 40% of its peers.
-
Free cash flow was positive in 5/10 years.
Risks
-
Insider ownership is only 1.0% (peer median: 1.5%).
The numbers
All the key metrics, grouped by purpose
Tap any ? icon to learn what it means.
Valuation
How expensive the stock looks
P/E (TTM)
21.60x
Forward P/E
10.61x
P/B
2.96x
P/S
0.69x
EV/EBITDA
8.95x
PEG ratio
0.22x
Profitability
How much profit each dollar creates
Gross margin
22.1%
Operating margin
4.5%
Net margin
3.3%
ROE
13.9%
ROA
3.0%
Health
Liquidity and balance-sheet strength
Debt / equity
0.94x
Current ratio
0.47x
Quick ratio
0.36x
Total debt
$6.87B
Total cash
$3.62B
Growth
How the business has been compounding
Revenue TTM
$31.55B
Revenue 5Y CAGR
15.5%
EPS TTM
2.05
EPS 5Y CAGR
-3.2%
Cash flow
How much cash the business throws off
Operating CF TTM
$2.75B
Free CF TTM
$-831.00M
FCF margin
-2.6%
Dividend
Shareholder payout
Yield
1.7%
Payout ratio
35.1%
Last ex-div date
2026-09-03